High Freq Trading (HFT), Good or bad?

By Abdul Muhit | Oxford Knight

Display of stock market charts in a street at night.


The High Frequency Trading (HFT) world has received a lot of negative feedback over the years; however, for most people coming into finance, HFT remains a pretty hot area to work… Money aside, here are some of the good and the bad points to ascertain if the work is actually all it’s cracked up to be, and whether it’s the right fit for you.

The Good:

  • The work is challenging: Outside of industry there are some big, hard problems being tackled that have the ability change people’s lives forever i.e. fighting pandemics, genetic illnesses, terrorism, improving earthquake prediction etc. But despite the argument some make that HFT isn’t able to compete with these challenges, the lower level work is just as intellectually challenging in finance as it is outside of industry. Indeed, the problems faced by HFT firms can be compared with those of Google/Facebook: for example, finding signals to pre-empt what users are actually seeking is very similar to analysing big financial data (structured, unstructured, and very noisy) to predict market trends. To that end, the guys working in HFT can get involved in as much game theory, information theory, probability, entropy, life, philosophy, ruin, epistemology, gambling theory, street-hustle machine learning, economics, engineering, and tech as they like!  The work is very easily comparable to that of high-end tech start-ups where the focus is all about getting your hands dirty, and wearing many hats in the pursuit of results.
  • Flat Structure/Start-up Feel: Much like a high-end tech start-up, you don’t have to wear a suit, or show any face-time. There is no smooth-talking your way to the top, as results are all about making money, and the transparency in the work-place means everyone can clearly see how much you have made or lost, and whether you truly deserve that promotion. Moreover, unlike some jobs with HFT there is no predetermined roadmap as to how things are done. You alone have to analyse the markets, understand what’s going on, put an idea together, test that idea, and put it out there to get results; and as such HFT is very entrepreneurial. For those that like a challenge, HFT is the one place a guy/girl out of University can make a name for themselves by getting the best results and showing their true potential from day one. There is no need to know the right people, have a huge network of contacts in the business, or laugh at the terrible jokes of people you simply don’t like. You get results and then you’re recognized, it’s as simple as that.  As scary as it may be to some, it can also be very comforting and, indeed, motivating.
  • Quick, Constant Feedback: In some jobs it is easy to get sucked into a big problem with a lot of challenging work that has no end in sight, or in fact an end you can see that is many years away. This may not seem like a problem to a lot of people, but as consumer taste becomes ever more fickle, and technology continues to evolve constantly, working on one thing for an extended period of time seems almost to be wasteful and regressive.  In order to get the best results and have the best product, any good company knows that projects need to be completed and released in the quickest time possible, amended constantly, and, most importantly, kept ahead of competitors’ equivalents at all times. HFT provides instant feedback… Winning.  The models that you have spent time developing will either work – or they’ll bomb. This may be scary – itis scary – but at least you know where you stand.  And you know where you stand very quickly and therefore can adapt the current system or produce something new. Compared with other jobs and other industries this is comforting because it means that little time is wasted on solving something no-one cares about or producing a product that no one wants.
  • Working with Super Smart People: The best HFTs can (and do) easily compete with the very best from the Valley, snatching those superstar coders coming out of MIT and Stanford. HFT has a strong desire for fresh faced people… And includes a tough and rigorous interview process to suss out the best.
  • Rewarding from a Moral Standpoint: Working in HFT is rewarding from a moral standpoint as well. This might sound a little unbelievable, but their social function is to provide liquidity, profitably and, thus, sustainably.  Take for example a farmer wanting to lock in a price for his corn trades with a HFT robot. The HFT robot gains a profit in expectation for taking on the risk, and the farmer is able to transfer the risk to the HFT robot. Much like an insurance company, they are willing to take risks for a price. The person on the other side of their trade is essentially paying a small fee to immediately convert their position into cash. Saying HFT is evil is like saying the currency exchange companies in airports are evil. Most people don’t find risk transfer intuitive and therefore don’t understand the social and economic function of HFT, but actually, it’s pretty necessary.

The bad:

  • Lack of Public Recognition: The opacity and intense secrecy in HFT contributes to making your work hidden to most people. This can result in awkward party conversation, either because someone asks you if they should buy gold vs AMZN, why you caused the flash crash, or why you shrank their grandmother’s pension fund. When most of the world, including some of the most educated people with PhDs, can’t tell you why the stock market exists or how it’s vital to a first world economy, it’s not a surprise that many people can’t tell you what automated market making is or how it helps consumers.
  • Stress: The entire industry is relatively secretive because it’s dealing withhuge sums of money and very unique trading strategies. As such, there is a culture of secrecy and competition. Everyone is your direct competitor, which does make the role very stressful. However, unlike some trading jobs, generally there are no holding overnight positions… So being able to sleep does help.
  • The selling out factor: If you get a job in finance, some of your friends, and strangers even, will most definitely joke about the fact that you’ve ‘sold out’.  And so for a career in HFT it’s important that you are first of all sure that you’re happy with it yourself, and secondly, perhaps most importantly for your sanity, that you don’t particularly care what others think and therefore won’t be offended when this happens (and trust me, it will happen a lot). If you don’t think that you’d be able to handle this kind of constant criticism of your integrity and character, then perhaps HFT isn’t the way to go.  Maybe, if this is the case, you should consider a career in something that is more glaringly obvious in showing how you’re making the world a better place – like working for a charity or joining the UN Peace Core.  But if you’re happy knowing that your job is necessary and does help the world, even if others don’t agree with you, then why not choose the High-Flying Lifestyle of HFT, and prove just how good you can be.

By Anna Dewhurst

Linkedin: uk.linkedin.com/in/annadewhurst

Email: anna.dewhurst@oxfordknight.co.uk

Website: http://www.oxfordknight.co.uk

Oxford Knight is a technical recruitment agency. None of our consultants have written a line of code… yet. We apologise if this article doesn’t keep some purist happy, but we’re trying to build a new generation of technical recruitment agencies…. We listen, participate, and deliver.

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